<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 205491

                                   -----------
                                    FORM 10-Q
                                   -----------

(Mark One)

|X|   Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

FOR THE PERIOD ENDED JUNE 30, 1999

                                       OR

|_|   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

COMMISSION FILE NUMBER: 0-28324

                           BIOTRANSPLANT INCORPORATED
             (Exact name of registrant as specified in its charter)

              DELAWARE                                  04-3119555
     (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)                 Identification No.)

                 CHARLESTOWN NAVY YARD, BUILDING 75 THIRD AVENUE
                        CHARLESTOWN, MASSACHUSETTS 02129
                    (Address of principal executive offices)

                                 (617) 241-5200
              (Registrant's telephone number, including area code)

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:

                                 Yes |X| No |_|

            As of July 31, 1999, there were 8,583,338 shares of the
                     Registrant's Common Stock outstanding.

================================================================================

<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                                    FORM 10-Q
                                      INDEX

<TABLE>
                                                   PART I. FINANCIAL INFORMATION
<CAPTION>

                                                                                                                   Page No.
                                                                                                                   --------
<S>                                                                                                                   <C>
<C>
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

         Condensed Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999...............................3

         Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1998
                  and 1999, and for the period from inception (March 20, 1990) to June 30, 1999........................4

         Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1999,
                  and for the period from inception (March 20, 1990) to June 30, 1999..................................5

         Notes to Condensed Consolidated Financial Statements..........................................................6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS............................................................................8

ITEM 3.  QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS....................................................11

                                                    PART II. OTHER INFORMATION

ITEM 1. - 6. .........................................................................................................12

                  SIGNATURES..........................................................................................13
</TABLE>


                                        2
<PAGE>

PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)
<TABLE>
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                                                                     June 30,
                                                                                             December 31,              1999
                                                                                                 1998               (Unaudited)
                                                                                          -------------------    ------------------
<S>                                                                                       <C>                    <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                               $    13,168,496           $ 12,029,015
     Short-term investments                                                                        6,842,963                650,070
     Accounts receivable                                                                                   -                227,025
     Prepaid expenses and other current assets                                                     1,212,294                691,533
                                                                                          -------------------    ------------------
         Total current assets                                                                     21,223,753             13,597,643

Property and equipment - net                                                                       1,458,025              1,540,604
Other assets                                                                                           1,541                  1,538
                                                                                          -------------------    ------------------

TOTAL ASSETS                                                                                   $  22,683,319           $ 15,139,785
                                                                                          ===================    ==================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current obligation under capital leases                                                 $        10,042           $      4,169
     Accounts payable                                                                                227,356                300,561
     Accrued expenses                                                                              2,112,658              2,611,110
     Deferred revenue                                                                              3,375,000              1,125,000
                                                                                          -------------------    ------------------
         Total current liabilities                                                                 5,725,056              4,040,840
                                                                                          -------------------    ------------------

Stockholders' equity:
     Preferred stock, $.01 par value, authorized 2,000,000 shares; issued and
         outstanding - no shares                                                                           -                     -
     Common stock, $.01 par value, authorized 25,000,000 shares; issued and outstanding
         8,581,463 shares at December 31, 1998 and 8,583,338 shares at June 30, 1999                  85,815                 85,833
     Additional paid-in capital                                                                   65,345,228             65,345,285
     Accumulated deficit                                                                         (48,472,780)           (54,332,173)
                                                                                          -------------------    ------------------
         Total stockholders' equity                                                               16,958,263             11,098,945
                                                                                          -------------------    ------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                     $  22,683,319           $ 15,139,785
                                                                                          ===================    ==================
</TABLE>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                        3
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)
<TABLE>
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<CAPTION>
                                     Three Months Ended                  Six Months Ended              Cumulative
                                          June 30,                            June 30,                   Since
                                   1998              1999              1998             1999           Inception
                               -------------    --------------    --------------    --------------   --------------
<S>                            <C>              <C>               <C>               <C>              <C>
Revenues:
   License fees                $           -    $            -    $            -    $            -   $    15,000,000
   Research and development          875,000         1,238,500         3,250,000         2,477,000        29,540,500
   Interest income                   342,728           173,748           759,311           398,906         5,269,563
                               -------------    --------------    --------------    --------------   ---------------
        Total revenues             1,217,728         1,412,248         4,009,311         2,875,906        49,810,063
                               -------------    --------------    --------------    --------------   ---------------

Expenses:
   Research and development        3,578,174         3,812,423         7,263,756         7,620,232        84,881,508
   General and administrative        584,240           566,885         1,338,657         1,113,737        17,499,820
   Interest                            2,654               671             8,179             1,330         1,760,908
                               -------------    --------------    --------------    --------------   ---------------
        Total expenses             4,165,068         4,379,979         8,610,592         8,735,299       104,142,236
                               -------------    --------------    --------------    --------------   ---------------

Net loss                       $  (2,947,340)   $   (2,967,731)   $   (4,601,281)   $   (5,859,393)  $   (54,332,173)
                               =============    ==============    ==============    ==============   ===============

Basic and diluted net loss
   per common share            $       (0.34)   $        (0.35)   $        (0.54)   $        (0.68)
                               =============    ==============    ==============    ==============

Weighted average common
   shares Outstanding              8,578,706         8,583,338         8,578,743         8,583,101
                               =============    ==============    ==============    ==============
</TABLE>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                        4
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)
<TABLE>
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<CAPTION>
                                                                              Six Months Ended           Cumulative
                                                                                  June 30,                  Since
                                                                            1998            1999          Inception
                                                                        ------------    ------------    ------------
<S>                                                                     <C>             <C>             <C>
Cash flows from operating activities:
     Net loss                                                           $ (4,601,281)   $ (5,859,393)   $(54,332,173)
     Adjustments to reconcile net loss to net cash used in
        Operating activities:
         Depreciation and amortization                                       219,459         194,846       3,679,126
         Noncash interest expense                                                 --              --         465,477
         Noncash expenses related to options and warrants                     16,594              --       1,185,244
         Changes in current assets and liabilities:
              Accounts receivable                                                 --        (227,025)       (227,025)
              Deposits and prepaid expenses                                  249,805         520,761        (691,533)
              Accounts payable                                                19,995          73,205         300,561
              Accrued expenses                                              (304,184)        498,452       2,611,110
              Deferred revenue                                            (3,250,000)     (2,250,000)      1,125,000
                                                                        ------------    ------------    ------------
         Net cash provided by (used in) operating activities              (7,649,612)     (7,049,154)    (45,884,213)
                                                                        ------------    ------------    ------------

Cash flows from investing activities:
     Purchases of property and equipment                                    (109,410)       (277,422)     (4,596,531)
     Disposal of property and equipment, net                                      --              --          28,040
     Purchases of investments                                             (6,356,467)       (404,136)    (66,541,876)
     Proceeds from investments                                            15,033,038       6,597,029      65,891,805
                                                                        ------------    ------------    ------------
         Net cash provided by (used in) investing activities               8,567,161       5,915,471      (5,218,562)
                                                                        ------------    ------------    ------------

Cash flows from financing activities:
     Proceeds from convertible notes payable to stockholders                      --              --       9,400,000
     Payments of obligations under capital leases                           (172,221)         (5,873)     (2,190,041)
     Proceeds from sale/leaseback of equipment                                    --              --         771,968
     Net proceeds from equipment leases                                           --              --       1,422,240
     Net proceeds from sale of redeemable convertible preferred stock             --              --      25,661,526
     Proceeds from sale of common stock                                       11,696              75      28,066,097
                                                                        ------------    ------------    ------------
         Net cash provided by (used in) financing activities                (160,525)         (5,798)     63,131,790
                                                                        ------------    ------------    ------------

Net increase (decrease) in cash and cash equivalents                         757,024      (1,139,481)     12,029,015

Cash and cash equivalents, beginning of period                             9,784,229      13,168,496              --
                                                                        ------------    ------------    ------------

Cash and cash equivalents, end of period                                $ 10,541,253    $ 12,029,015    $ 12,029,015
                                                                        ============    ============    ============

Supplemental disclosures and noncash transactions:
     Equipment acquired under capital leases                            $         --    $         --    $ (2,210,270)
                                                                        ============    ============    ============
     Conversion of convertible notes payable to stockholders and
         Accrued interest into redeemable convertible preferred stock   $         --    $         --    $  9,905,710
                                                                        ============    ============    ============
     Conversion of preferred stock into common stock                    $         --    $         --    $ 36,202,290
                                                                        ============    ============    ============
     Issuance of warrants                                               $         --    $         --    $    741,737
                                                                        ============    ============    ============
     Interest paid during the period                                    $      6,036    $      1,260    $  1,388,631
                                                                        ============    ============    ============
</TABLE>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                        5
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1. Operations and Basis of Presentation

BioTransplant Incorporated ("BioTransplant" or the "Company") was incorporated
on March 20, 1990. The Company is developing proprietary pharmaceuticals and
organ transplantation systems which represent a comprehensive approach to
inducing functional tolerance in humans.

The Company is in the development stage and is devoting substantially all of
its efforts toward product research and development and raising capital. The
Company is subject to a number of risks similar to those of other development
stage companies, including dependence on key individuals; competition from
larger companies; difficulties inherent in obtaining regulatory approval for
products under development; the development and marketing of commercial
products; and the need to obtain adequate additional financing necessary to
fund development of its products.

The interim financial statements herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
representation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The results for the interim periods
presented are not necessarily indicative of results to be expected for the
fiscal year or any future period. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998, as filed with the SEC.

2. Cash Equivalents and Investments

Cash equivalents include short-term, highly liquid investments with original
maturities of less than three months from the date of purchase. Short-term
investments consist primarily of corporate notes and securities issued by the
United States Treasury or other United States government agencies with original
maturities of greater than three months and remaining maturities of less than
one year. Long-term investments consist primarily of corporate notes with
remaining maturities of greater than one year. In accordance with Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", the Company's investments are
classified as held-to-maturity and are stated at amortized cost, which
approximates market value.

The Company held the following investments at December 31, 1998 and June 30,
1999:

      <TABLE>
      <CAPTION>
                                                                        December 31,         June 30,
                                                                            1998               1999
                                                                       --------------     -------------
      <S>                                                                <C>               <C>
      Cash and cash equivalents:                                         $ 13,168,496      $ 12,029,015

      Short-term Investments:
        Corporate Bonds (average maturity of 2 and 1 months)                6,842,963           650,070
                                                                       --------------     -------------

      Total cash and cash equivalents and investments                    $ 20,011,459      $ 12,679,085
                                                                       ==============     =============
      </TABLE>


                                        6
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                   (Unaudited)

3. Net Loss Per Common Share

Net loss per common share is based on the weighted average number of common
shares outstanding during the periods presented, in accordance with Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share". Diluted net
loss per common share is the same as basic net loss per common share since the
inclusion of shares issuable pursuant to the exercise of stock options and
warrants would be antidilutive. Antidilutive securities not included consist of
113,274 shares issuable pursuant to the exercise of common stock options and
128,113 shares issuable pursuant to exercise of common stock warrants.

4. Revenue Recognition

Substantially all of the Company's license and research and development revenues
are derived from two collaborative research arrangements. Annual research and
development payments are recognized on a straight-line basis over the period of
the contract, which approximates when work is performed and costs are incurred.
License fee revenue represents technology transfer fees received for rights to
certain technology of the Company. License fees are recognized as revenue when
all obligations as defined in the individual arrangements are fulfilled by the
Company and there is no risk of refund. Deferred revenue represents amounts
received in advance of revenue recognition for research and development.
Research and development expenses in the accompanying consolidated statements of
operations include funded and unfunded expenses.

5. Term Note

In September 1997, the Company entered into a term note with a bank, whereby the
Company may borrow up to $500,000 for certain equipment and fixtures during a
specified drawdown period, after which time the outstanding balance will become
payable in 36 equal monthly principal installments plus interest. Borrowings
under the term note bear annual floating interest at the bank's Prime Rate
(7.75% at June 30, 1999) during the drawdown period with an option to convert
during the repayment period to an annual fixed rate at the three-month London
Interbank Offered Rate ("LIBOR") (5.37% at June 30, 1999) plus 2.25%. Borrowings
under the term note are secured by equipment and fixtures purchased using the
proceeds of the note. The Company did not borrow against this term note during
the drawdown period, which expired during 1998, and is now in the process of
extending the drawdown period and increasing its availability to $1.0 million
under the same conditions of this term note. There were no borrowings
outstanding under this term note at June 30, 1999.

6. New Accounting Standards

Derivative Instruments and Hedging Activities

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
The statement is effective for the year ended December 31, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company does not expect adoption of this statement to have a material impact on
the Company's financial statements.


                                        7
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Overview

Since commencement of operations in 1990, the Company has been engaged primarily
in the research and development of proprietary pharmaceuticals and organ
transplantation systems, which represent a comprehensive approach to inducing
functional tolerance in humans. The major sources of the Company's working
capital have been the proceeds from sales of equity securities, sponsored
research funding and license fees and capital lease financings. The Company has
not generated any revenues from the sale of products to date, and does not
expect to receive any product revenues for several years, if ever. The Company
will be required to conduct significant additional research, development,
testing and regulatory compliance activities that, together with general and
administrative expenses, are expected to result in significant and increasing
operating losses for at least the next several years.

In 1993, and as amended and restated in September 1995, the Company and Novartis
Pharma AG ("Novartis") entered into a collaboration agreement for the
development and commercialization of xenotransplantation products utilizing gene
transduction. Under the agreement, Novartis committed research funding through
March 1998 of $20.0 million, all of which had been received as of June 30, 1999,
and agreed to pay license fees of $10.0 million, all of which had been received
as of June 30, 1999. Novartis has also agreed to fund certain development and
premarketing costs and products which may be developed as a result of the
collaboration, portions of which, under certain circumstances, may be repayable
from the Company's operating profits from sales of any such products.

In October 1997, the Company and Novartis expanded their relationship by
entering into a collaboration and license agreement to develop and
commercialize xenotransplantation products utilizing the Company's
proprietary mixed bone marrow chimerism technology. Under the agreement, the
Company may receive from Novartis research funding, license fees, and
milestone payments of up to $36 million assuming the agreement continues for
its full term and the Company achieves certain specified research objectives.
As of June 30, 1999, research funding of $8.0 million and license fees of
$3.0 million had been received. In addition to research funding, Novartis has
also agreed to fund certain development and premarketing costs of products
which may be developed pursuant to the collaboration, portions of which may
be repayable under certain circumstances.

In October 1995, the Company and MedImmune Inc. ("MedImmune") entered into a
collaborative research agreement for the development of products to treat and
prevent organ rejection. MedImmune paid the Company a $2.0 million license
fee at the time of execution of the agreement, and agreed to fund and assume
responsibility for clinical testing and commercialization of BTI-322 and
other related products. MedImmune has provided $2.0 million of non-refundable
research support and has agreed to make milestone payments which could total
up to an additional $11.0 million assuming the Company achieves certain
specified research objectives. Any milestone payments which are received are
repayable from royalties on such products.

Results of Operations
Three months Ended June 30, 1999 and 1998

Revenues increased to $1.4 million for the three months ended June 30, 1999 from
$1.2 million for the three months ended June 30, 1998. The increase in revenues
was primarily due to $1.1 million in sponsored research funding from Novartis
during the three months ended June 30, 1999, compared to $875,000 in sponsored
research funding from Novartis during the three months ended June 30, 1998. This
increase was offset by a decrease in interest income to $174,000 for the three
months ended June 30, 1999 from $343,000 for the three months ended June 30,
1998. The decrease was due primarily to lower cash balances available for
investment.

Research and development expenses increased to $3.8 million for the three months
ended June 30, 1999 from $3.6 million for the three months ended June 30, 1998.
This increase was primarily due to additional external research support combined
with increases in research and development staff and associated increases in
supplies and support services.

General and administrative expenses decreased to $567,000 for the three months
ended June 30, 1999 from $584,000 for the three months ended June 30, 1998. This
decrease was primarily due to decreases in outside consulting services rendered
in connection with business development activities during the three months ended
June 30, 1999 compared to the three months ended June 30, 1998.

As a result of the above factors the Company generated a net loss for the three
months ended June 30, 1999 of $3.0 million, or $0.35 per share, compared to a
net loss of $3.0 million, or $0.34 per share for the three months ended June 30,
1998.


                                        8
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

Six months Ended June 30, 1999 and 1998

Revenues decreased to $2.9 million for the six months ended June 30, 1999 from
$4.0 million for the six months ended June 30, 1998. The anticipated decrease in
revenues was due to decreased research and development revenues which primarily
consisted of funding from Novartis of $2.2 million for the six months ended June
30, 1999 compared to $3.3 million for the six months ended June 30, 1998.
Interest income decreased to $399,000 for the six months ended June 30, 1999
from $759,000 for the six months ended June 30, 1998. The decrease was due
primarily to lower cash balances available for investment.

Research and development expenses increased to $7.6 million for the six months
ended June 30, 1999 from $7.3 million for the six months ended June 30, 1998.
This increase was primarily due to additional external research support combined
with increases in research and development staff and associated increases in
supplies and support services.

General and administrative expenses decreased to $1.1 million for the six months
ended June 30, 1999 from $1.3 million for the six months ended June 30, 1998.
This decrease was primarily due to decreases in outside professional services
rendered in connection with market research and business development during the
six months ended June 30, 1999 compared to the six months ended June 30, 1998.

Liquidity and Capital Resources

Since its inception, the Company's operations have been funded principally
through the net proceeds of an aggregate of $64.2 million from sales of equity
securities. The Company has also received $41.4 million from research and
development and collaboration agreements with Novartis, $4.0 million from an
alliance agreement with MedImmune and $2.2 million in equipment lease financing.
The proceeds of the sales of equity securities, notes payable and capital leases
and cash generated from the corporate collaborations with Novartis and MedImmune
have been used to fund operating losses of approximately $54.3 million and the
investment of approximately $5.2 million in equipment and leasehold improvements
through June 30, 1999. The Company is in the process of extending and increasing
its term note with a bank from $500,000 to $1.0 million for certain equipment
and fixtures borrowing. There were no borrowings outstanding under this term
note at June 30, 1999. The Company had no significant commitments as of June 30,
1999 for capital expenditures.

The Company had cash and cash equivalents and short-term investments of $12.7
million as of June 30, 1999.

The Company anticipates that its existing funds should be sufficient to fund
its operating and capital requirements as currently planned through 2000.
However, the Company's cash requirements may vary materially from those now
planned, due to many factors, including, but not limited to, the progress of
the Company's research and development programs, the scope and results of
preclinical and clinical testing, changes in existing and potential
relationships with corporate collaborators, the time and cost in obtaining
regulatory approvals, the costs involved in obtaining and enforcing patents,
proprietary rights and any necessary licenses, the ability of the Company to
establish development and commercialization capacities or relationships and
the costs of manufacturing.

The Company expects to incur substantial additional costs, including costs
related to research and development activities, preclinical studies, clinical
trials, obtaining regulatory approvals, manufacturing and the expansion of its
facilities. The Company will need to raise substantial additional funds, through
additional financings including public or private equity offerings and
collaborative arrangements with corporate partners. There can be no assurance
that funds will be available on terms acceptable to the Company, if at all. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate certain of its product development programs or to license to
others the right to commercialize products or technologies that the Company
would otherwise seek to develop and commercialize itself, any of which would
have a material and adverse effect on the Company.


                                        9
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

Year 2000 Readiness

Historically, certain computer programs have been written using two digits
rather than four digits, to define the applicable year. This could lead, in many
cases, to a computer's recognition of a date using "00" as 1900 rather than the
year 2000. This phenomenon could result in significant computer system failures
or miscalculations, and is generally referred to as the "Year 2000" problem or
issue.

Generally, the Company has Year 2000 exposure in three areas: (i) financial and
management operating computer systems used to manage the Company's business,
(ii) microprocessors and other equipment used by the Company ("embedded chips")
and (iii) computer systems used by third parties, in particular financial
institutions, vendors and suppliers of the Company.

The Company has substantially completed an inventory of its financial and
management operating systems and has made a determination of which such systems
were or were not Year 2000 compliant. The company has tested each significant
program which is believed to be Year 2000 compliant and has remedied all
significant programs that are not Year 2000 compliant. In some cases, Year 2000
issues have been corrected through the development of new programs, which
enhance or provide new functionality to these financial and management operating
systems

The Company has completed an inventory and assessment of its exposure to
embedded chips in its facilities and in the equipment used in such facilities.
The Company has also completed an assessment of the capability of vendors of
such equipment to successfully remediate Year 2000 problems in equipment with
embedded chips. As of June 30, 1999, the Company has substantially completed
remediation efforts of its exposure to embedded chips in its facilities or
equipment.

The Company estimates that the total historical and estimated additional cost
to remediate its financial and management operating systems and embedded
chips in its facilities or equipment should not exceed $25,000, including
potential capital costs for new computers and related equipment. This amount
does not include costs for computer software developed in order to provide or
improve functionality.

The Company has also been interviewing third parties, vendors and suppliers of
the Company to determine their exposure to Year 2000 issues, their anticipated
risks and responses to those risks. The Company expects to substantially
complete this process and address any significant risks by September 30, 1999.

If the Company is unsuccessful in completing remediation of non-compliant
systems, correcting embedded chips that are not Year 2000 compliant and if
any third parties, vendors or suppliers cannot rectify Year 2000 issues, the
Company could incur additional costs, which may be substantial, to develop
alternative methods of managing its business and replacing non-compliant
equipment. The Company believes that its reasonably likely worst case Year
2000 scenario would occur if a material third party vendor would, as a result
of its own Year 2000 noncompliance, fail to successfully remediate Year 2000
problems in equipment which is material to the Company's business and
operations. Any such failure could have a material adverse effect on the
Company's business. As discussed above, the Company is in the process of
establishing a contingency plan in the event of any such noncompliance.

Factors Affecting Future Operating Results

This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "intends,"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include, without limitation, those set forth below and
elsewhere in this Quarterly Report on Form 10-Q and in the Section titled
"Business - Factors That May Affect Results" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, as filed with the SEC, which
Section is incorporated herein by reference.


                                       10
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

The Company is in the early development stage and has been engaged, to date,
primarily in organizational and research and development activities. The Company
has not yet completed the development of, or conducted significant human testing
with respect to, any product. In particular, the Company's AlloMuneTM and
XenoMuneTM Systems are based upon approaches which are novel and, to the
Company's knowledge, have never been achieved in humans, including by the
Company. There can be no assurance that any of the Company's products will be
successfully developed, prove to be safe and efficacious in clinical trials,
meet applicable regulatory standards, obtain required regulatory approvals, be
capable of being produced in commercial quantities at reasonable costs or be
successfully marketed.

The Company has a substantial accumulated deficit. The Company expects to incur
losses for at least the next several years and that such losses will increase as
the Company expands its research and development activities. The Company will
require substantial additional funds for its research and product development
programs, operating expenses, the pursuit of regulatory approvals and expansion
of its production, sales and marketing capabilities. Adequate funds for these
purposes, whether through equity or debt financings, collaborative or other
arrangements with corporate partners or from other sources, may not be available
when needed or on terms acceptable to the Company. Insufficient funds could
require the Company to delay, scale back or eliminate certain of its research
and product development programs or to license to third parties to commercialize
products or technologies that the Company would otherwise develop or
commercialize itself.

The Company's strategy for development and commercialization of its products
entails entering into arrangements with third parties. There can be no assurance
that the Company will be able to maintain its existing arrangements or establish
additional arrangements that the Company deems necessary or acceptable to
develop and commercialize its potential pharmaceutical products or that such
arrangements will be successful. If any of the Company's strategic partners were
to breach or terminate its agreement with the Company or otherwise fail to
conduct its collaborative activities successfully in a timely manner, such delay
or termination could have a material adverse effect on the Company's business,
financial condition and results of operations.

Proprietary rights relating to the products of BioTransplant will be protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are maintained in confidence as trade
secrets. There may be pending or issued third-party patents relating to the
products of BioTransplant and BioTransplant may need to acquire licenses to, or
to contest the validity of, any such patents. It is likely that significant
funds would be required to defend any claim that BioTransplant infringes a
third-party patent. There can be no assurance that any license required under
any such patent would be made available.

Other factors that may affect the Company's future operating results include the
inherent risk of product liability claims which may result from the testing,
marketing and sale of human therapeutic products, the Company's fluctuations in
quarterly operating results, the Company's ability to continue to attract and
retain qualified management and scientific staff, risks associated with the
regulatory approval process, and its ability to anticipate or respond adequately
to rapid and significant technological changes that may develop in the field of
human therapeutic products.

ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
the Company's capital until it is required to fund operations, including the
Company's research and development activities. All of these market-risk
sensitive instruments are classified as held-to-maturity and are not held for
trading purposes. The Company does not own derivative financial instruments in
its investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.

INTEREST RATE RISK: The Company's investment portfolio includes investment grade
debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.


                                       11
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
         Response:  None

ITEM 2.  CHANGES IN SECURITIES
         Response:  None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
         Response:  None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual Meeting of Stockholders on Monday, May 24, 1999. The
following represents the results of the voting on proposals submitted to a vote
of stockholders at such meeting:

1. To elect the following persons to serve as Directors of the Company for the
ensuing year.

<TABLE>
<CAPTION>
                                                         Number of Votes
                                                      For           Abstaining
                                                   ---------        ----------
         <S>                                       <C>                 <C>
         Elliot Lebowitz, Ph.D.                    6,875,422           3,750
         Donald R. Conklin                         6,875,422           3,750
         William W. Crouse                         6,875,422           3,750
         James C. Foster, J.D.                     6,875,422           3,750
         Daniel O. Hauser, Ph.D.                   6,875,422           3,750
         Michael S. Perry, D.V.M., Ph.D.           6,875,422           3,750
         Robert A. Vukovich, Ph.D.                 6,875,422           3,750
</TABLE>

2. To approve the amendment to the 1994 Director's Equity Plan.

<TABLE>
<CAPTION>
                                         Number of Votes
                           For                Against         Abstaining       Unvoted
                           ---                -------         ----------       -------
                        <S>                   <C>                <C>           <C>
                        4,626,694             540,815            5,639         1,706,294
</TABLE>

3. To approve the amendment to the 1997 Stock Incentive Plan.

<TABLE>
<CAPTION>
                                         Number of Votes
                           For                Against         Abstaining       Unvoted
                           ---                -------         ----------       -------
                        <S>                   <C>                <C>           <C>
                        4,644,684             510,325            17,869        1,706,294
</TABLE>


                                       12
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

4. To ratify the selection of Arthur Andersen LLP as the Company's independent
accountants for 1999.

<TABLE>
<CAPTION>
                                        Number of Votes
                           For               Against          Abstaining       Unvoted
                           ---               -------          ----------       -------
                        <S>                   <C>                <C>            <C>
                        6,878,703             150                319            0
</TABLE>

ITEM 5.  OTHER INFORMATION
         Response:  None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a)    Exhibits
      27 Financial Data Schedule.

b)    Reports on Form 8-K None.


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                           BioTransplant Incorporated
                           (Registrant)

Date: August 12, 1999      /s/ Elliot Lebowitz

                           ----------------------------------------------
                           Elliot Lebowitz
                           President and Chief Executive Officer
                           (Principal Executive Officer)

                           /s/ Richard V. Capasso

                           ----------------------------------------------
                           Richard V. Capasso
                           Vice President, Finance and Treasurer
                           (Principal Financial and Accounting Officer)


                                       13